Intrinsic value of Ashford Hospitality Prime - AHP

Previous Close

$10.38

  Intrinsic Value

$11.18

stock screener

  Rating & Target

hold

+8%

Previous close

$10.38

 
Intrinsic value

$11.18

 
Up/down potential

+8%

 
Rating

hold

Our model is not good at valuating stocks of financial companies, such as AHP.

We calculate the intrinsic value of AHP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  16.00
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  406
  422
  432
  443
  456
  469
  485
  501
  519
  538
  559
  581
  604
  630
  656
  685
  715
  746
  780
  815
  853
  892
  934
  978
  1,024
  1,073
  1,124
  1,178
  1,235
  1,295
  1,358
Variable operating expenses, $m
 
  346
  354
  362
  373
  384
  396
  409
  423
  439
  456
  467
  486
  506
  528
  551
  575
  600
  627
  656
  686
  718
  751
  787
  824
  863
  905
  948
  994
  1,042
  1,093
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  361
  346
  354
  362
  373
  384
  396
  409
  423
  439
  456
  467
  486
  506
  528
  551
  575
  600
  627
  656
  686
  718
  751
  787
  824
  863
  905
  948
  994
  1,042
  1,093
Operating income, $m
  45
  77
  78
  81
  83
  86
  89
  92
  95
  99
  103
  114
  118
  123
  128
  134
  140
  146
  152
  159
  167
  174
  183
  191
  200
  210
  220
  230
  241
  253
  265
EBITDA, $m
  91
  225
  230
  236
  243
  250
  258
  267
  277
  287
  298
  310
  322
  335
  350
  365
  381
  398
  416
  434
  454
  476
  498
  521
  546
  572
  599
  628
  658
  690
  724
Interest expense (income), $m
  38
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
  47
Earnings before tax, $m
  26
  30
  31
  34
  36
  39
  42
  45
  48
  52
  56
  67
  71
  76
  81
  87
  93
  99
  106
  112
  120
  127
  136
  144
  153
  163
  173
  183
  195
  206
  219
Tax expense, $m
  2
  8
  9
  9
  10
  10
  11
  12
  13
  14
  15
  18
  19
  21
  22
  23
  25
  27
  28
  30
  32
  34
  37
  39
  41
  44
  47
  50
  53
  56
  59
Net income, $m
  19
  22
  23
  25
  26
  28
  30
  33
  35
  38
  41
  49
  52
  56
  59
  63
  68
  72
  77
  82
  87
  93
  99
  105
  112
  119
  126
  134
  142
  151
  160

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  127
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,257
  -92
  -94
  -97
  -99
  -102
  -106
  -109
  -113
  -117
  -122
  -127
  -132
  -137
  -143
  -149
  -156
  -163
  -170
  -178
  -186
  -194
  -204
  -213
  -223
  -234
  -245
  -257
  -269
  -282
  -296
Adjusted assets (=assets-cash), $m
  1,130
  -92
  -94
  -97
  -99
  -102
  -106
  -109
  -113
  -117
  -122
  -127
  -132
  -137
  -143
  -149
  -156
  -163
  -170
  -178
  -186
  -194
  -204
  -213
  -223
  -234
  -245
  -257
  -269
  -282
  -296
Revenue / Adjusted assets
  0.359
  -4.587
  -4.596
  -4.567
  -4.606
  -4.598
  -4.575
  -4.596
  -4.593
  -4.598
  -4.582
  -4.575
  -4.576
  -4.599
  -4.587
  -4.597
  -4.583
  -4.577
  -4.588
  -4.579
  -4.586
  -4.598
  -4.578
  -4.592
  -4.592
  -4.585
  -4.588
  -4.584
  -4.591
  -4.592
  -4.588
Average production assets, $m
  1,076
  1,425
  1,458
  1,495
  1,537
  1,584
  1,635
  1,690
  1,751
  1,816
  1,885
  1,960
  2,039
  2,124
  2,214
  2,310
  2,411
  2,518
  2,631
  2,751
  2,877
  3,011
  3,151
  3,300
  3,456
  3,620
  3,794
  3,976
  4,168
  4,370
  4,582
Working capital, $m
  0
  -889
  -910
  -933
  -959
  -988
  -1,020
  -1,055
  -1,093
  -1,133
  -1,177
  -1,223
  -1,273
  -1,326
  -1,382
  -1,442
  -1,505
  -1,572
  -1,642
  -1,717
  -1,796
  -1,879
  -1,967
  -2,060
  -2,157
  -2,260
  -2,368
  -2,482
  -2,602
  -2,728
  -2,860
Total debt, $m
  765
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
  27
Total liabilities, $m
  882
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total equity, $m
  375
  -92
  -94
  -97
  -99
  -102
  -106
  -109
  -113
  -117
  -122
  -127
  -132
  -137
  -143
  -149
  -156
  -163
  -170
  -178
  -186
  -194
  -204
  -213
  -223
  -234
  -245
  -257
  -269
  -282
  -296
Total liabilities and equity, $m
  1,257
  -92
  -94
  -97
  -99
  -102
  -106
  -109
  -113
  -117
  -122
  -127
  -132
  -137
  -143
  -149
  -156
  -163
  -170
  -178
  -186
  -194
  -204
  -213
  -223
  -234
  -245
  -257
  -269
  -282
  -296
Debt-to-equity ratio
  2.040
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  0.219
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  19
  22
  23
  25
  26
  28
  30
  33
  35
  38
  41
  49
  52
  56
  59
  63
  68
  72
  77
  82
  87
  93
  99
  105
  112
  119
  126
  134
  142
  151
  160
Depreciation, amort., depletion, $m
  46
  148
  152
  156
  160
  164
  169
  175
  181
  188
  195
  196
  204
  212
  221
  231
  241
  252
  263
  275
  288
  301
  315
  330
  346
  362
  379
  398
  417
  437
  458
Funds from operations, $m
  55
  170
  175
  180
  186
  193
  200
  208
  216
  226
  236
  245
  256
  268
  281
  294
  309
  324
  340
  357
  375
  394
  414
  435
  457
  481
  506
  531
  559
  588
  618
Change in working capital, $m
  -2
  -17
  -20
  -23
  -26
  -29
  -32
  -35
  -38
  -41
  -43
  -47
  -50
  -53
  -56
  -60
  -63
  -67
  -71
  -75
  -79
  -83
  -88
  -93
  -98
  -103
  -108
  -114
  -120
  -126
  -133
Cash from operations, $m
  57
  188
  195
  203
  212
  222
  232
  243
  254
  266
  279
  291
  306
  321
  337
  354
  372
  391
  411
  432
  454
  477
  502
  528
  555
  584
  614
  645
  679
  714
  750
Maintenance CAPEX, $m
  0
  -140
  -142
  -146
  -150
  -154
  -158
  -163
  -169
  -175
  -182
  -189
  -196
  -204
  -212
  -221
  -231
  -241
  -252
  -263
  -275
  -288
  -301
  -315
  -330
  -346
  -362
  -379
  -398
  -417
  -437
New CAPEX, $m
  -23
  -28
  -33
  -37
  -42
  -47
  -51
  -56
  -60
  -65
  -70
  -75
  -80
  -85
  -90
  -96
  -101
  -107
  -113
  -120
  -126
  -133
  -141
  -148
  -156
  -165
  -173
  -182
  -192
  -202
  -212
Cash from investing activities, $m
  100
  -168
  -175
  -183
  -192
  -201
  -209
  -219
  -229
  -240
  -252
  -264
  -276
  -289
  -302
  -317
  -332
  -348
  -365
  -383
  -401
  -421
  -442
  -463
  -486
  -511
  -535
  -561
  -590
  -619
  -649
Free cash flow, $m
  157
  20
  20
  20
  21
  21
  22
  23
  25
  26
  28
  28
  30
  32
  35
  37
  40
  43
  46
  49
  53
  56
  60
  64
  69
  73
  78
  84
  89
  95
  101
Issuance/(repayment) of debt, $m
  -73
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Issuance/(repurchase) of shares, $m
  -35
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
Cash from financing (excl. dividends), $m  
  -119
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
Total cash flow (excl. dividends), $m
  39
  19
  18
  18
  18
  18
  19
  20
  21
  22
  23
  23
  25
  27
  29
  31
  33
  36
  38
  41
  44
  48
  51
  55
  59
  63
  67
  72
  77
  82
  87
Retained Cash Flow (-), $m
  26
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Prev. year cash balance distribution, $m
 
  90
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
Cash available for distribution, $m
 
  110
  20
  20
  21
  21
  22
  23
  25
  26
  28
  28
  30
  32
  35
  37
  40
  43
  46
  49
  53
  56
  60
  64
  69
  73
  78
  84
  89
  95
  101
Discount rate, %
 
  5.30
  5.57
  5.84
  6.14
  6.44
  6.76
  7.10
  7.46
  7.83
  8.22
  8.63
  9.06
  9.52
  9.99
  10.49
  11.02
  11.57
  12.15
  12.76
  13.39
  14.06
  14.77
  15.50
  16.28
  17.09
  17.95
  18.85
  19.79
  20.78
  21.82
PV of cash for distribution, $m
 
  105
  18
  17
  16
  16
  15
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  1
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Current shareholders' claim on cash, %
  100
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  100.0
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  100.0
  100.0
  100.0
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  100.0
  100.0

Ashford Hospitality Prime, Inc. invests in high revenue per available room (RevPAR), luxury hotels and resorts. The Company conducts its business and owns all of its assets through its operating partnership, Ashford Hospitality Prime Limited Partnership (Ashford Prime OP). The Company operates in the direct hotel investment segment of the hotel lodging industry. As of February 24, 2017, it owned interests in 11 hotel properties in six states, the District of Columbia and St. Thomas, the United States Virgin Islands with 3,702 total rooms, or 3,467 net rooms, excluding those attributable to its joint venture partner. The hotel properties in its portfolio are mainly located in the Unites States urban markets. The Company owns nine of its hotel properties directly, and the remaining two hotel properties through an investment in a majority-owned consolidated entity. All of the hotels in the Company's portfolio are asset-managed by Ashford Hospitality Advisors LLC.

FINANCIAL RATIOS  of  Ashford Hospitality Prime (AHP)

Valuation Ratios
P/E Ratio 14.2
Price to Sales 0.7
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 4.7
Price to Free Cash Flow 7.9
Growth Rates
Sales Growth Rate 16%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -85.9%
Cap. Spend. - 3 Yr. Gr. Rate -3.9%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 204%
Total Debt to Equity 204%
Interest Coverage 2
Management Effectiveness
Return On Assets 4.1%
Ret/ On Assets - 3 Yr. Avg. 3.3%
Return On Total Capital 1.6%
Ret/ On T. Cap. - 3 Yr. Avg. 0.4%
Return On Equity 4.9%
Return On Equity - 3 Yr. Avg. 1.3%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 41.4%
Gross Margin - 3 Yr. Avg. 43.1%
EBITDA Margin 27.1%
EBITDA Margin - 3 Yr. Avg. 25.2%
Operating Margin 11.1%
Oper. Margin - 3 Yr. Avg. 12.7%
Pre-Tax Margin 6.4%
Pre-Tax Margin - 3 Yr. Avg. 2.3%
Net Profit Margin 4.7%
Net Profit Margin - 3 Yr. Avg. 1.1%
Effective Tax Rate 7.7%
Eff/ Tax Rate - 3 Yr. Avg. 0.9%
Payout Ratio 89.5%

AHP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AHP stock intrinsic value calculation we used $414 million for the last fiscal year's total revenue generated by Ashford Hospitality Prime. The default revenue input number comes from 2016 income statement of Ashford Hospitality Prime. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AHP stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.3%, whose default value for AHP is calculated based on our internal credit rating of Ashford Hospitality Prime, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Ashford Hospitality Prime.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AHP stock the variable cost ratio is equal to 81.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AHP stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 175.1% for Ashford Hospitality Prime.

Corporate tax rate of 27% is the nominal tax rate for Ashford Hospitality Prime. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AHP stock is equal to -0.3%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AHP are equal to 337.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Ashford Hospitality Prime operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AHP is equal to -210.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $0 million for Ashford Hospitality Prime - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 30 million for Ashford Hospitality Prime is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Ashford Hospitality Prime at the current share price and the inputted number of shares is $0.3 billion.

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Financial statements of AHP
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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